Written by Adnan Essa
Posted on 06/08/2013

Insolvencies increase as recovery picks up

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Insolvency statistics show that the number of insolvencies in England and Wales increased during Q2, when compared to the previous quarter. The increase suggests that the economy is picking up and should serve as a reminder to businesses that they need to remain cautious.

The insolvency statistics show that the number of insolvencies in England and Wales- to include liquidations, receiverships and administrations, increased from 4,554 companies in Q1 to 4,952 in the three months to June. This represents an 8.7 per cent increase quarter-on-quarter.

John Alexander, a partner and Insolvency Practitioner at accountants Carter Backer Winter, said, “The increase in the number of insolvencies for the first time since 2008 is consistent with the beginnings of a growing economy, said to be growing now at 0.6 per cent.”

“Despite the current forecasts indicating we may see some further modest growth in the economy this year, it hasn’t come through in any volume yet. When, and if, it does, we can expect to see a further significant increase in company insolvencies as has been the trend following past periods of recession, despite a continuing benign business environment with the Bank of England leaving interest rates at 0.5 per cent again.”

Whilst an increase in business failures suggests the economic recovery is progressing it can place businesses in a vulnerable position. A customer or supplier going out of business can have knock on effects, such as late payments, bad debt or reduced orders. These effects can place additional strains on a business’ cash flow.

Monitoring a business’ supply chain can help flag up potential issues, allowing the business to act before damage is done. Graydon’s CreditWatch monitors 30 critical events, which can be customised to suit the needs of the business, and emails clients the second news occurs. 

The year-on-year insolvency statistics paint a brighter picture. In the 12 months ending in Q2 2013, 1 in 166 active companies went in to liquidation. This compares to the 1 in 154 business failures during the 12 months ending in Q1 2013.

Mr Alexander added, he expects to see the rise in the number of insolvencies continue into the fourth quarter and warned company directors to be wary. The threat of insolvency should be a particular concern for SMEs.

Tracy Ewen, managing director of IGF Invoice Finance, said, “Recent figures paint a rather positive picture of the small business market. Not only do today’s Insolvency Service figures show that corporate insolvencies are down, but the Bank of England revealed earlier this month that lending to small businesses is on the increase.

“Despite this good news, small businesses are still struggling. Many business owners are finding it difficult to get access to finance. Some are even reporting that they are nervous about attempting to request financial assistance.”

Accessing finance can be difficult for businesses, particularly SMEs. Following Graydon’s tips can help a business demonstrate they are creditworthy and obtain the funding they need.

With the economy picking up businesses should see an improvement in the overall business environment and the options open to them, remaining cautious whilst taking advantage of this is vital.